Sonal Shah is executive director of the at Georgetown University and a senior fellow at the , which is partnering with Georgetown's on a variety of impact investing initiatives, including the development of federal, state, and local policies that support the growth of the field. The Case Foundation also just released , which is public and open to comment.

Shah is a former director of the , where she helped push for and develop new models of innovation in government and championed public-private partnerships as the most effective way to solve problems in an era of constrained budgets. In addition to serving as a fellow at the , she has worked as an economist in the Treasury Department, managed environmental strategy for Goldman Sachs, led 's global development initiatives, and co-founded the and the U.S.-based nonprofit .

Philanthropy News Digest: Impact investing is a hot topic these days, but I think a lot of people are struggling to define what it is. Can you give us a one- or two-sentence definition?

Sonal Shah: We define impact investing as those organizations or enterprises — both for profit and not-for-profit — and investors — private, institutional, or philanthropic — that intentionally seek a quantifiable social and financial return on their investments. It is important to emphasize that we need impact investing, grants, and government support to have impact. This isn't a trade-off between social and financial returns; it's a combination of bringing in more capital and creating new models in the social sector, leading most importantly to greater impact.

PND: What's behind the emergence of things like impact investing, social impact bonds, and the ? Do they represent a paradigm shift in the way society addresses stubborn social problems, or is that overstating the case?

SS: While all of the things you mentioned are innovative approaches to addressing social challenges, they also represent a new way of doing business and signal three interesting developments: First, we need better partnership models. There is a growing recognition that government, corporations, and nonprofits cannot hope to solve our biggest challenges if they insist on working alone. Second, there is a clear need for scale. There are a lot of great pilot projects out there that have shown success, but there has been very little discussion about how we can provide capital to scale those projects — not just in size, but in impact. Social impact bonds and the Social Innovation Fund are two instruments focused on scaling programs that work. And third, we need all oars in the water. For too long, we have drawn a sharp line between grant funding and more traditional investments. Why not use both, grants and investments, as well as hybrid models, to address our most urgent challenges? We should be working together to mobilize capital markets, business, and nonprofits to solve problems.

PND: A 2010 from the , the , and JPMorgan Global Research projected that the global impact investing market could grow to $1 trillion by 2020. Is the industry on track to hit that target? And when can we expect to see real measurable impact from some of these investments?

SS: I believe we're on track to having a national conversation about impact investing that involves everyone — the private sector, nonprofits, government, and individual investors. You can hear it on college and university campuses, where students no longer even bother to make distinctions between different kinds of funding sources. Instead, they're busy devising solutions to various social problems, and then looking for every possible means — grants, investments, low-cost loans, et cetera — to fund those solutions.

As for numbers, I'm always cautious about them. The fact is, we need more transparency around what we define as "impact" and better reporting on our impact measures. Better data will give us a clearer picture of how quickly the marketplace is growing and/or evolving, as well as a better sense of the impact we are actually creating.

PND: You and others have highlighted the critical need for more robust infrastructure in the impact investing space. Who is doing good work on that front? And what remains to be done?

SS: Great question. First, infrastructure is critical for social impact. In addition, we need to support intermediary organizations that are helping social impact organizations and enterprises. These include mentors, incubators, social sector intermediaries, social enterprise accelerators, and capital access networks such as CDFIs, microlenders, rural extension centers, and innovation clusters.

Second, we need to reduce transaction costs. And to do that we need more capital for technology and impact measurement, better due diligence, better templates for social impact bonds, and more outreach to and training for government, nonprofits, and philanthropic organizations.

Third, we need better research and knowledge sharing. We need to invest in research that helps us assess the best models and demonstrates that they are actually having an impact. One example of a research project that is making a difference is the . The initiative's most recent study, , provides data and an analysis of how impact investing funds can provide both a financial and social return to investors. The is another good example of a platform for research and knowledge sharing.

Lastly, we need to develop more case studies that illustrate what is and is not working so that governments, philanthropic organizations, nonprofits, and investors all can learn and adapt as necessary. And that effort has to include the open sharing of data by all parties. Open-source data has the potential to transform the impact investing marketplace.

PND: You recently became the founding executive director of the at Georgetown University and have said you envision the center as a laboratory where students can test their ideas for solving some of the world's most urgent problems. How do you and your colleagues plan to help them do that? And are there any projects being incubated at the center that you’re excited about?

SS: We're very excited about the center. We want it to have a significant presence in key conversations — not just in and around Georgetown, but in the policy community in general — related to social impact and innovation. And as we work to achieve that goal, we will be focused on three key areas:

One, we plan to offer skills-based learning classes for students who are looking to address and have an impact on urgent social problems, continuing studies classes for alumni and those in the social impact community, and executive education training related to social impact and innovation for government, nonprofit, and corporate leaders.

Two, we hope to lead on key issues related to social impact and innovation, especially as it relates to policy. There are a lot of great practitioners in the social impact space and we've all learned a lot from them over the years. We hope to do the same thing in a few areas that are new and/or emerging through convenings, research, case studies, and educational opportunities for policy makers. We want to spark discussions that lead to actual change related to social impact and innovation.

Last but not least, we are working on creating a lab where students who are interested in starting a social enterprise can learn from social entrepreneurs who are invited to visit the center and share their knowledge. That effort will be complemented by a speaker series that introduce students to leaders in the social impact space. We just started that up in February, but the interest and excitement already is growing.